The role of food tech startups in the foodservice industry

As Indian middle class consumers grow more aware of global culture and trends – due to electronic media, wider travel and greater international exposure – they are also growing hungry for authentic cuisines, both Indian and international. The food industry has been challenged with being innovative in terms of offerings, while streamlining processes and strategies to achieve profitability.

Consumers today are looking at digitization, not just for menu but also for discovering food (Image Courtesy: Sorbis/Shutterstock)

Partner PricewaterhouseCooper, Anurag Mathur says, “The food service industry in India is driven by pure macro-economic fundamentals. The industry and the country are both poised to see a growth in consumption spending.”

In traditional industries like food, there is a significant trend of look and feel, a hard presence. Added to this is today, an increasing digital presence.

“Five years ago, investments were going all to restaurant businesses. Now there is almost a 50-50 split between food technology and restaurant business, a significant shift in the landscape,” says Mathur.

So, can the foodies, who are also techies organize the unorganized market and build up a much faster and profitable business? Can they compete with restaurant businesses which have struggled to organize themselves and earn profits?

Packaged Food Market

A big trend shift has been observed towards local cuisines. Across the world, it is the local cuisine of the country that gets organized first, served up and packaged. In India, however, the package food market has been dominated largely by international cuisine.

This poses a big opportunity in the B2B food service market. The merging of packaged food with the food service industry will is expected to form a solid shape soon, and retail and hospitality are expected to drive this B2B food service segment very quickly, very soon.

The need for food safety regulation will drive people towards using more and more package foods in their kitchens. The back end of it will get driven to use more vending options – that till date have been restricted to tea, coffee and cola – which are bound to see a significant growth.

Food Vs Technology

The food tech domain has seen more of action in the last couple of years. On one hand there is the $7 billion food delivery market in India, growing fast; on the other, online ordering has generated $0.5 billion in revenues. Consumers are looking at digitization, not just in terms of menus but also for discovering food. This is where food tech startups come into play.

These food tech startups are also trying to solve the age old problem of how to get the delivery going in a price that is profitable. There is also a drive towards building up innovative delivery models and packaging options along with a social network for tracking the rating and reviews.

Food aggregators and delivery companies like TinyOwl, Foodpanda, Zomato, Just Eat, Swiggy, among others, allow customers to choose and order from detailed menus that are available online. They give an additional convenience factor of ordering from comfort of home and provide discounts, cashback and lucrative offers, which these QSRs cannot match.

Food tech startups also have access to a large pool of small restaurants and home chefs, which drive higher gross margins for these players as compared to standalone businesses.

According to a Bloomberg report, more than 400 food delivery apps cropped up in India in the past three years, raising approximately $120 billion.

Online engagement and offline purchase

It is not possible to consider food-tech companies as pure e-commerce players. Consumers conduct a lot of online research before walking into a restaurant. People look at menu, look at locations, making reservations, read the reviews and ratings.

As far as loyalty is considered, very few are doing well in the food service space. Some of the companies in the last two years have maintained around 20 per cent plus same store growth. These are companies which have used loyalty as well as analytics in a very intelligent way to build up their customer base in the local geography.

This model allows restaurants to not only gain traction and scale up their value chain but is also helps them in generating business offline largely through a substantial customer base.

The Omnichannel of food service retail is the ability to manage all of these and offer the consumer a choice to come through any of these channels and follow the path.